A new price war is brewing, and it will bring consumers cheaper mobile phone calls and data charges.
The first sign of this war was an announcement by Telstra that it would introduce new low-cost plans.
Australia’s biggest telco will now offer customers a budget $55 a month package with extra data, and a range of other cheaper plans.
It has also cut the penalty for customers who go over the data limit.
This is good news for all smartphone users in Australia, as it signals that competition is about to heat up and bring consumers lower mobile phone prices.
Telstra hasn’t had to price their plans aggressively for a number of years — in fact, this is the first time it has cut prices in three years. Outgoing Vodafone CEO Bill Morrow said it was a sign Telstra was ‘panicking’.
The telco giant has never really competed in the budget end of the market, instead going for higher value consumers and business customers.
While Telstra’s strategy of pursuing profitability over market share has worked so far, its latest cut-price plans show pressure from other telcos — like Vodafone — may be forcing Telstra to change tack.
Vodafone, you may recall, lost millions of customers in 2010. In a lack of foresight that borders on negligence, Vodafone simply didn’t predict the massive uptake of smartphones by Australians, and so didn’t invest in their network.
As take-up of smartphones soared, Vodafone’s outdated network couldn’t handle the extra data. The system crashed, and customers fled: Vodafone’s customer base fell from 7.5 million users in 2010 to 5 million in 2013.
It’s been a slow road back to recovery since then, but finally Vodafone’s fortunes are turning.
It has invested billions in its network to increase 4G coverage, shifted its call centre from India to Tasmania, and cut its total staffing numbers by 40%.
As well, Vodafone has aggressively pursued customers by offering more data than its rivals, and cheaper plans.
And their strategy is working. Last December was the first month Vodafone didn’t lose customers.
There is a third player here we haven’t yet mentioned: Optus.
Signs point to Australia’s second largest telco joining the pricing battle — especially since it’s started to lose customers.
Last year Optus reported 57,000 post-paid mobile phone subscribers had left the company in the three months to December 31, and 7000 prepaid.
Over 12 months, Optus lost 134,000 mobile subscribers with total subscribers falling to 9.43 million.
By comparison, Telstra added over 700,000 subscribers over the same period.
Optus has so far committed only to spending more money on marketing and store purchases to arrest this trend.
But with Telstra and Vodafone competing on price and data, expect Optus to do the same. And that means lower prices.
Callum Denness
Contributing Editor, Money Morning
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